June 24th 2009, The Fed Has Everyone�s Attention

The USD traded to the weaker side of its range against the major currencies on Tuesday as the markets essentially set themselves up for today�s economic risk events. The U.S. did release their Existing Homes Sales data and it proved disappointing with a number of 4.77 million compared to the estimate of 4.82 million. The previous statistics from Existing Homes Sales were also revised downward. Equity markets traded in a rather consolidated manner on Tuesday finding little in the way of impetus from either the Existing Homes Sales data or President Obama�s new conference. While Obama did say that his administration is not considering any new stimulus programs at this time, he did continue to talk about the need to move forward with the new healthcare proposals which conceivably could cost hundreds of billions of dollars. The crux of the matter is that investors remained cautious yesterday choosing to wait for today�s FOMC Statement.
It is a dead certainty that the Federal Reserve will not change their interest rate today, but what all eyes will be on is the statement issued from the two day meeting which will deal with the recent speculation on what the interest rates will do. The Fed was quick to douse water on rumors a couple of weeks ago that it was considering any interest rate hike in the midterm when the �green shoots legions� got ahead of themselves proclaiming a recovery was around the corner. Today�s report will likely serve as confirmation for one of the groups regarding the debate that persists between bulls and bears. Also scheduled for release is the Core Durable Goods, which are anticipated to be minus -0.2%. Making their way forth too will be New Home Sales and Crude Oil Inventories. With the specter of the Fed meeting and the major economic data it stands to reason that the markets could see volatility sparked by any shocks to the nervous systems of investors. And when you throw the prospect of weekly Unemployment Claims and Final GDP numbers which are due tomorrow it stands to reason that we have the potential to see plenty of trading opportunity the next few days. If the U.S. produces poor numbers today with Core Durable goods and the FOMC restates its opinion that the American economy is unlikely to show substantial growth this calendar year and interest rates will remain mired within a near zero policy, the USD could actually pick up strength based on a desire for a safe haven by beleaguered investors.
The EUR managed to climb against the USD on Tuesday coming off of its recent weakness and placing itself in a position that will certainly ignite debate amongst its supporters and detractors once again. The PMI data from Europe was negative from Germany with both the Flash Services and the Manufacturing readings producing disappointing results. The French managed to produce mixed results from the same PMI data. Europe will publish its Current Account findings today and tomorrow the broad Industrial New Orders statistics will be brought forth. Though the EUR was able to bounce back yesterday, news regarding the amount of problems that some of its banks have continue and data from Eastern Europe has produced a steady diet of dire economic warnings from Poland, Latvia, Bulgaria, and Romania. The inner dynamics of the ECB compared to the BoE and the Fed are wide, specifically because the ECB while a Central Bank does not have the ability to implement quantitative easing in the same manner as the other two because it does not have one central treasury from which to issue money. Thus the question that should be asked long range about the recession that Europe is experiencing, is about the individual countries making up its membership and their ability to cohesively deal with problems that may be affected by exposure to the financial crisis. The EUR found some stability yesterday and it may find that it trades in a dollar centric manner today.
The Sterling was able to lift itself up against the USD on Tuesday and this came as the BBA Mortgage Approval figures showed a positive number of 31.2K compared to the estimate of 29.5K. The previous month�s figure was revised upward too. Today BoE Governor Mervyn King is scheduled to appear before the Parliament�s Treasury Committee and speak about inflation and the banking crisis. This coupled with the Fed meeting in the U.S. could form a volatile mix for the GBP today. Tomorrow the Nationwide HPI will be released. Thus, investors will have a deluge of new opinions regarding economic sentiment to digest today and Thursday. Having been taken to the lower point of its strong range against the USD earlier this week, the Sterling will face a true test of its standing among investors the next few days.

The JPY traded in a tight formation on Tuesday after making gains on Monday against the USD. International equity markets turned in mixed results across the board yesterday. Having found the strong side of its ranges against the greenback earlier this week the JPY appears to have met some resistance once again. With a slew of data coming forth from the U.S. today it stands to reason that risk adverse traders will be on full alert today. International equity markets will be a lynchpin for the JPY and traders may seek safe havens depending on the day�s results.

Written by: Robert Petrucci
Bforex Chief Commodity Expert and Forex Analyst